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Effects of bank consolidation promotion policy: Evaluating the Bank Law in 1927 Japan

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  • Tetsuji Okazaki
  • Michiru Sawada

Abstract

In recent years, there has been a wave of bank consolidations that has spread across the world, and bank consolidation has been one of the major issues of the research on banking and finance. This paper explores the role of government in bank consolidations, using the data on prewar Japan. The data on prewar Japan are useful, because not only there were numerous bank consolidations, but also we can identify consolidations promoted by the government policy. The Bank Law of 1927 set the minimum capital criterion for banks, which came to be a powerful measure for the government to promote consolidations. In this paper, we identified policy-promoted consolidations referring to the minimum capital of the bank, and examined the effects of policy-promoted consolidations in comparison with other consolidations. It was confirmed that policy-promoted consolidations mitigated the financial crisis by enhancing the ability of the bank to collect deposits, under the condition that the financial system was exposed to serious negative shocks. On the other hand, policy-promoted consolidations had negative aspects. They were accompanied by large organizational costs, and decreased bank profitability.

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  • Tetsuji Okazaki & Michiru Sawada, 2004. "Effects of bank consolidation promotion policy: Evaluating the Bank Law in 1927 Japan," Discussion papers 04004, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:04004
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    Cited by:

    1. Mathias Hoffmann & Tetsuji Okazaki & Toshihiro Okubo, 2019. "Branch Banking and Regional Financial Markets: Evidence from Prewar Japan," CIGS Working Paper Series 19-001E, The Canon Institute for Global Studies.
    2. Kris J. Mitchener & Mari Ohnuki, 2008. "Institutions, Competition, and Capital Market Integration in Japan," NBER Working Papers 14090, National Bureau of Economic Research, Inc.
    3. Jean-Pascal Bassino & Thomas Lagoarde-Segot, 2015. "Informational efficiency in the Tokyo Stock Exchange, 1931–40," Economic History Review, Economic History Society, vol. 68(4), pages 1226-1249, November.
    4. Sawada, Michiru, 2010. "Liquidity risk and bank portfolio management in a financial system without deposit insurance: Empirical evidence from prewar Japan," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 392-406, June.
    5. Mathias Hoffmann & Toshihiro Okubo, 2021. "Comparative advantage and pathways to financial development: evidence from Japan’s silk-reeling industry," ECON - Working Papers 387, Department of Economics - University of Zurich.
    6. Tetsuji Okazaki, 2015. "Bank Behavior in Regional Finance and the Development of Regional Industries: The Case of Prewar Fukushima, Japan," CIRJE F-Series CIRJE-F-972, CIRJE, Faculty of Economics, University of Tokyo.
    7. Randall Morck & Bernard Yeung, 2017. "East Asian Financial and Economic Development," Working Papers id:12112, eSocialSciences.
    8. Ahmad Bello, Dogarawa, 2006. "Challenges of Bank Consolidation to the Central Bank of Nigeria: A Descriptive Analysis," MPRA Paper 23198, University Library of Munich, Germany.
    9. Tetsuji Okazaki, 2015. "Bank Behavior in Regional Finance and the Development of Regional Industries:The Case of Prewar Fukushima, Japan," CIGS Working Paper Series 15-001E, The Canon Institute for Global Studies.
    10. Tetsuji Okazaki & Koji Sakai, 2020. "Capital Market Integration with Multiple Convergence Clubs: The Case of Prewar Japan," CARF F-Series CARF-F-475, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    11. Jean-Pascal Bassino & Thomas Lagoarde-Segot, 2013. "Trading patterns at the Tokyo Stock Exchange, 1931-1940," CEH Discussion Papers 012, Centre for Economic History, Research School of Economics, Australian National University.
    12. Thomas Lagoarde-Segot & Jean Pascal Bassino, 2012. "Informational dynamics and cross market linkages in the Tokyo Stock Exchange, 1931-40," Working Papers 12017, Economic History Society.
    13. Kris James Mitchener & Mari Ohnuki, 2007. "Capital Market Integration in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(2), pages 129-154, November.
    14. Kris James Mitchener & Mari Ohnuki, 2008. "Institutions, Competition, and Capital Market Integration in Japan," IMES Discussion Paper Series 08-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    15. Tetsuji Okazaki & Koji Sakai, 2020. "Capital Market Integration with Multiple Convergence Clubs: The Case of Prewar Japan," CIRJE F-Series CIRJE-F-1148, CIRJE, Faculty of Economics, University of Tokyo.
    16. Jihad Dagher, 2018. "Regulatory Cycles: Revisiting the Political Economy of Financial Crises," IMF Working Papers 2018/008, International Monetary Fund.
    17. Tetsuji OKAZAKI & Koji SAKAI, 2020. "Capital Market Integration with Multiple Convergence Clubs: The Case of Prewar Japan," CIGS Working Paper Series 20-004E, The Canon Institute for Global Studies.
    18. Kris James Mitchener & Mari Ohnuki, 2007. "Capital Market Integration In Japan," IMES Discussion Paper Series 07-E-17, Institute for Monetary and Economic Studies, Bank of Japan.

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